The Further Education Funding Council said that during the past year there had been a few cases "in which college companies find it difficult to demonstrate that public funds are not being used to support private enterprises".
The National Audit Office has also reported cases where colleges could not demonstrate effective control of their companies or overseas ventures.
In 1996-97, 202 colleges set up outside colleges. The council is to publish a good practice guide later this year to show institutions how to remain within the rules.
The company's main objective must be to help its parent college, not some independent business venture that was of no benefit to the corporation. Care should be taken to avoid any conflict of interests if an individual had both a senior role in college and was a company director.
Colleges must be able to demonstrate that they have not used public funds intended for teaching in England to finance overseas developments. Colleges should apply the same high standards of management and control at home and abroad.